Egypt strikes expanded $8bn deal with the IMF

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A woman stands next to a currency exchange point displaying an image of the United States dollar, in Cairo, Egypt, on March 6, 2024 [Mohamed Abd El Ghany/Reuters]

The deal comes as the central bank said it would let the Egyptian pound trade freely.

Egypt has signed an expanded $8bn deal with the International Monetary Fund (IMF), Egypt’s Prime Minister Mostafa Madbouly has said.

The new agreement announced on Wednesday is an expansion of the $3bn, 46-month Extended Fund Facility that the IMF struck with Egypt back in December 2022, which was predicated on the shift to a more flexible exchange-rate system.

The deal comes as the central bank said it would let the pound currency trade freely and announced an interest-rate hike of 600 basis points in a bid to stabilise the economy.

As part of the new deal, Egypt will also receive a loan of about $1.2bn from a separate facility that promotes environmental sustainability, Madbouly said.

The December 2022 programme had stalled when Egypt reverted to keeping its pound at a tightly managed rate, and amid delays to an ambitious programme to divest state assets and boost the role of the private sector.

IMF
The International Monetary Fund (IMF) logo in Washington, DC, the United States [File: Yuri Gripas/Reuters]

The IMF deal comes less than two weeks after Egypt announced a deal with the Emirati sovereign wealth fund ADQ that it said would deliver $35bn in investments by late April.

Economists say the central bank’s moves earlier today were likely signs that the government was looking to nab another IMF deal, as a flexible exchange rate has been one of the key demands of the IMF.

Ahmed Helal, head of MENA at Global Counsel, a strategic advisory firm, said the divergence between the official and black market exchange rates of the Egyptian pound to the dollar was becoming “unsustainable”.

“It was bad for business and bad for investment. It was prolonging the unpredictability and volatility that investors had to face when looking at opportunities in Egypt.”

The Egyptian economy has been hit hard by years of government austerity, the COVID-19 pandemic, the fallout from the war in Ukraine, and most recently, the war in Gaza.

Since January 2022, the Egyptian pound has lost around 50 percent of its value against the US dollar. Meanwhile, nearly 30 percent of Egyptians live in poverty, according to official figures.

SOURCE: AL JAZEERA AND NEWS AGENCIES

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